Business Environment and Challenges in Nigeria Presentation By Mr Larry E Ettah GMD/CEO UAC of Nigeria Plc and Chairman CAP Plc at the Akzo Nobel Conference Presentation Outline • • • • Introduction Nigerian Economic Overview Business Environment Challenges Expectations of Akzo Nobel as Business Partner • Conclusions Introduction Nigerian Economic Overview • Nigeria is Africa’s second largest economy in terms of GDP ($175Bn as at 2008) second only to South Africa. • GDP growth has averaged 6-7% since 2003. • The country is the largest in terms of population in Africa, with population estimates now approaching 150 million people! • The population distribution is weighted in favour of younger citizens with 52% nineteen years and below; and over 80% below 40 years of age. Nigerian Economic Overview (contd.) • Nigerians are entrepreneurial, dynamic and amenable to global lifestyles and consumption-oriented. • Per capita GDP has improved from under $700 in 2004 to $1,418 by December 2009 reflecting economic growth, but wealth distribution is heavily skewed with 54% of the population classified as living below the poverty line. • Telecommunications has experienced a revolution with tele-density at 58%; 95.7million mobile/GSM; 11.7million mobile/CDMA and 2.7million land lines as at August 2010, from just 400,000 total lines in 2001. Nigerian Economic Overview (contd.) • Nigerian has experienced its longest period of uninterrupted civilian rule after independence in 1960 since 1999 even though there are questions about the quality of the electoral process. • There has also been various economic reforms since 1999, particularly between 2003 and 2007 in telecommunications, banking, pensions, insurance, downstream petroleum, mines and minerals etc. • The current president appears to be resuming reforms suspended by his late predecessor, particularly in the power sector and privatisation. Nigerian Economic Overview (contd.) • But the macroeconomic picture is weakened by a dependency on oil which provides over 75% of the national budget and over 90% of export earnings. • In addition GDP growth is disproportionately based on oil export; un-modernised agriculture and trading; with manufacturing now contributing less than 4% of national output. • The major constraint to manufacturing is powernational power generation is around 3,700 MW versus possible demand in excess of 20,000 MW (including suppressed demand) Business Environment Challenges: Social • Rising Crime and Insecurity – Armed Robbery and Kidnapping in Eastern Nigeria – Militancy in the Niger-Delta – Recurrent religious and sectarian crisis in parts of Northern Nigeria • Education and Health Services have suffered from under-investment during military rule • Absence of social protections Political • Elevated political risk as 2011 elections approach • Regional and ethnic tensions associated with power rotation • Political Corruption • Multiples Taxes, Charges and Levies from Federal, State and Local Governments and Agencies Economic • Weak Infrastructure, particularly power and transportation • Businesses have to provide alternatives to public services:– – – – Alternative Power Generation Security Services Courier and Postal Deliveries Water Boreholes • Problems associated with export and import logistics-ports; customs; inspection services; etc Economic (contd.) • Mostly Imported Inputs • Exchange Rate Risk – In December 2008, the Naira was devalued from N117/$ to N150/$ – With Falling External Reserves, further devaluation is a possibility • High Interest Rates (Prime Lending Rates around 18%) • High Inflation (13.7% as at August 2010) • Strained Financial and Capital Markets • New law on local content (Game changes) Expectations of Akzo Nobel as Business Partner Conclusions • Nigeria is a huge potential market which continues to experience GDP growth averaging 6-7% through the global recession. • In spite of its environmental and infrastructural constraints and challenges, Nigeria remains a high return business environment, and one which stands poised to experience economic and social transformation. “Challenges exist, we don’t mourn them, we don’t complain about them , we take those into account as reality as we design our business models”. • Akzo Nobel can work with UACN/CAP Plc to mitigate some of the challenges assured that the medium to long term prospects for our market is very positive. Thank you for listening!